What is a 95% LTV mortgage?
What is a 95% LTV mortgage?A 95% loan-to-value mortgage - or 95% LTV mortgage - means borrowing 95% of the value of the property you are buying. With this type of product, you will have to contribute 5% of the value of the property which is a relatively small deposit depending on the price of the property you wish to purchase.
While there are some specialist mortgages available at 100% LTV, or even higher, these are hard to find and not generally available to most borrowers. In terms of mainstream mortgages, 95% is currently the highest loan-to-value product available, which means you will have to contribute 5% of the value of the property.
Partner SpotlightSpecialist mortgage advice for first-time buyers
Our partner Tembo is a specialist mortgage broker that offers tailor-made mortgage solutions for people with smaller deposits including Guarantor, LTV and first-time buyer schemes.
How does a 95% LTV mortgage work?
95% LTV mortgages have become rare over recent years, with lenders keen to reduce their risk exposure after the financial crisis. This was intensified by the effects of Covid-19, with the result that the number of 95% LTV mortgage products fell to just 3 in February 2021, compared with 273 in March 2020.
However, the government’s mortgage guarantee scheme was designed to incentivise mortgage lenders to launch higher LTV products. The government's scheme effectively offered partial compensation to lenders on part of the mortgage should a borrower default, which resulted in a greater amount of choice of 95% LTV mortgages for consumers.
Making use of first-time buyer schemes as well as unique solutions such as guarantor help is not uncommon for first-time buyers with 5% deposits but some of the mortgage solutions won't be available online - you will need a bespoke mortgage solution. You can contact Tembo* which is a specialist mortgage broker that offers tailor-made mortgage solutions for people with smaller deposits, helping them maximise their borrowing power to get the property they want. You'll find a full review of the service they provide in our article "Tembo Mortgage 2023 Review - can it boost mortgage success for first-time buyers?".
How much do 95% LTV mortgages cost?
It is worth noting that you will generally pay more for a 95% LTV mortgage than for lower LTV alternatives. This will make your monthly repayments higher, so it might be worth considering waiting until you can secure a lower LTV deal, either by saving more towards a deposit or building up more equity in your existing property.
In the tables below we show you the best 95% LTV mortgage deals. To find the best deal for your individual circumstances, check out our mortgage comparison tool, powered by Habito*.
Best 95% LTV mortgages for first-time buyers
Based on a property valued at £350,000 with a £17,500 deposit and a mortgage term of 25 years. Assuming a repayment mortgage with the fees paid upfront. Assessment based on the best interest rate. Standard variable rate (SVR) detailed.
Cheapest 2-year fixed-rate 95% LTV mortgages (first-time buyers)
| Provider | Initial interest rate | Rate after 2 years | Lender fee |
| Scottish Building Society | 5.39% | 8.49% | £1,545 |
| Halifax | 5.47% | 8.74% | £1,099 |
| Lloyds Bank | 5.49% | 8.74% | £999 |
Cheapest 5-year fixed-rate 95% mortgages (first-time buyers)
| Provider | Initial interest rate | Rate after 5 years | Lender fee |
| The Family Building Society | 4.89% | 8.44% | £904 |
| Nationwide | 5.09% | 7.99% | £999 |
| Halifax | 5.10% | 8.74% | £1,099 |
Cheapest 2-year tracker 95% mortgages (first-time buyers)
| Provider | Initial interest rate | Rate after 2 years | Lender fee |
| The Cambridge Building Society | 5.74% | 8.54% | £224 |
| Penrith Building Society | 5.79% | 7.99% | £385 |
| Furness Building Society | 5.84% | 8.69% | £140 |
Cheapest 5-year tracker 95% mortgages (first-time buyers)
| Provider | Initial interest rate | Rate after 5 years | Lender fee |
| Vernon Building Society | 6.09% | 8.10% | £769 |
Best 95% LTV mortgages for remortgaging
Based on a property valued at £350,000 with a £17,500 deposit and a mortgage term of 25 years. Assuming a repayment mortgage with the fees paid upfront.
Cheapest 2-year fixed-rate 95% mortgages (remortgage)
| Provider | Initial interest rate | Rate after 2 years | Lender fee |
| Scottish Building Society | 5.39% | 8.49% | £1,095 |
| Hanley Economic Building Society | 5.49% | 8.49% | £160 |
| The Cambridge Building Society | 5.84% | 8.54% | £624 |
Cheapest 5-year fixed-rate 95% mortgages (remortgage)
| Provider | Initial interest rate | Rate after 5 years | Lender fee |
| Leek United Building Society | 5.19% | 8.24% | £105 |
| Vernon Building Society | 5.24% | 8.10% | £170 |
| The Tipton & Coseley Building Society | 5.24% | 8.59% | £150 |
Can I get a 95% LTV mortgage?
As 95% LTV mortgages are deemed to be riskier by lenders, your application is likely to be scrutinised before you are accepted. The lender will be keen to check the valuation on the property is accurate, as well as work out whether you are likely to be able to keep up with the monthly repayments on your mortgage. This will be assessed by looking at:
- Your credit history: The lender will want to look at your past financial behaviour and your current financial commitments to see how likely you are to service the debt responsibly. For a 95% LTV deal, you will generally need an excellent credit score with credit reference agencies. This will be assessed by the lender running a credit check on your file, which will then be visible to other lenders. It is, therefore, a good idea to check whether you are likely to be accepted in advance to avoid a rejection further weakening any credit score. You can do this by checking the eligibility requirements set out by the lender, or by using a mortgage adviser who can determine the chances of you being accepted.
- Affordability: You will need to be able to demonstrate you will be able to afford to pay back the mortgage. The lender will take your income into account, as well as things like living costs and existing debts.
How can I get the best 95% LTV mortgage for my circumstances?
While you can simply assess the deals available with the main lenders and approach them directly, many of the best deals are only available through intermediaries. A qualified mortgage adviser with access to many mortgage lenders will be able to look at your circumstances and help you find the best value deals and those you are most likely to be accepted for.
If you speak to a mortgage broker, they will take into consideration:
- How much you need to borrow: Lenders have different criteria on how they work out the maximum loan size, based on income multiples. If you are looking to borrow a relatively large amount compared with how much you earn, an adviser will be able to find lenders with more generous income multiple allowances or can give you a clearer understanding of a more appropriate level of borrowing.
- What type of mortgage suits your needs: Although most of the new 95% LTV mortgages are five-year fixed rate deals, an adviser will be able to talk you through the various types of mortgages available, as well as the length of time you can pay back the loan over.
- Whether it is a joint application: If you are buying a property with someone else, it alters the income multiples lenders use.
- Any specific requirements: If you have been furloughed, are self-employed, have irregular income or have a bad credit history, an adviser will be able to work out the best mortgage option for you, as well as providing access to specialist lenders that are not available direct by the general public.
In terms of choosing which one to use, you may want to consider an online mortgage broker such as Habito*. We have independently vetted their services and you can read our full review - 'Habito review: The best online mortgage broker for you'. Alternatively, you can find a mortgage broker in your area using the professional directory service, VouchedFor* this website lists qualified mortgage advisers that you can choose from based on real customers' reviews.
Should I get a 95% LTV mortgage?
Getting a 95% LTV mortgage means that you will own only 5% of your property value so you have to weigh up the advantages and disadvantages of doing so. We list some of these here to help you decide whether it is a good idea to buy and get onto the property ladder now or wait until you have a larger deposit to reduce the mortgage LTV.
What are the advantages of 95% LTV mortgages?
- The main advantage of a high LTV mortgage for first-time buyers is that, because you don’t need to have a large deposit, you are likely to be able to buy a property sooner
- If you are remortgaging, it is useful to have higher LTV products available in case the value of your property has dropped. Similarly, if you are looking to move to a more expensive property and have limited equity available in your current home, a higher LTV mortgage could be necessary
What are the disadvantages of 95% LTV mortgages?
- As 95% LTV mortgages are seen as being a higher risk to lenders, they typically attract higher interest rates than lower LTV alternatives. This means you will end up paying a higher monthly repayment and a greater amount across the lifetime of the mortgage. However, you will typically be able to remortgage onto a lower LTV deal at a cheaper rate when the initial offer period is over, assuming your home has gone up in value and you have kept up repayments.
- Some - but not all - lenders charge a higher lending charge for higher LTV mortgages. Also known as a mortgage indemnity guarantee, this charge is used by the lender to buy an insurance policy to protect it against the extra risk of default. This charge could be anything up to 8% of the amount you borrow and may have to be paid upfront or, with some lenders, can be added to the mortgage balance. Some lenders will be signed up for the government 95% mortgage guarantee scheme which negates the need for this type of insurance though.
- One of the main risks for those who choose 95% LTV mortgages is negative equity. This happens when the value of your property falls and you end up owing more on your mortgage than the property is worth. This is obviously much more likely to happen if its starting value is only 5% more than your mortgage total. It has implications if you want to move house or when you need to remortgage as you may struggle to find a lender who is willing to lend to you.
Alternatives to 95% LTV mortgages
A simple alternative to a 95% LTV mortgage is an equivalent deal at a lower LTV ratio. By saving more towards a deposit, you could potentially save yourself thousands of pounds over the term of the mortgage by paying significantly lower interest rates. However, this isn't an option available to everyone and, in a challenging market, the appeal of 95% LTV products is easy to understand. Other mortgage options include:
Shared ownership
Shared ownership schemes work by the buyers owning a share of the property - typically 10% to 75% - and paying rent on the remainder. As you are not buying the whole property upfront, you may be able to borrow at a lower loan-to-value, opening up cheaper deals. The scheme is a good option for those who are keen to get on the property ladder but have perhaps been priced out of the market. Applicants must have a household income of less than £80,000 per year (£90,000) in London.
For more information, see our article "What is the shared ownership scheme?".
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers - Habito, VouchedFor, Unbiased
